Stock Option and Equity Compensation Plan

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If you’re wanting to pay your people with stock options, restricted share units, or performance share units, you’re in the right spot.

Besides paying someone a salary or wage and other things, like bonuses or commission, there are some cool ways you can pay people to make them want to stay around for a long time. Stock options, restricted share units, and performance share units are some common ways to encourage senior employees and others to do their best work and stay with the company for the long haul.

What are stock options, restricted share units, and performance share units?

Stock options are the right to buy the company’s stock in the future at a price you set today. For example, you could give someone an option to buy a number of your company’s shares at $5 per share after one year from today (or whatever time you choose). The idea is the person will make some really good money if after a year the shares are now worth say $15 per share, because they will have made $10 per share in return.

RSUs (restricted share units) are a company’s promise to give shares or their to a person after vesting, meaning after a certain time the person gets paid through their RSUs. For example, after 1 year they could get the value of 20% of their RSUs, after 2 years they could get another 20%, and so on.

PSUs (performance share units) are the same as RSUs except that in addition to vesting, or even instead of it, the person gets the shares or their value after performance goals are met. For example, the person could get the value from the PSUs after a year plus a significant sales goal is accomplished.

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Encourage your people to work hard and stay for the long run.

Companies use equity incentives – like stock options, RSUs, and PSUs – to keep their directors, employees, and even key contractors working for the business for a long time. Equity incentives can have excellent upside potential. Just think about a tech startup that gives stock options to their founding employees to buy the company’s shares for say $1 per share. If five years later the company is going public and those shares are worth $100 each now, that’s a huge reason for someone to stay with the company and work hard to get there. It happens, too. Uber, Zoom Communications, Facebook, and many others have been down that path, maybe you will too.

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